Desperate house buyers turn to finance firms

New Zealanders forced out of the housing market by new lending restrictions are increasingly turning to finance companies to boost their deposits, new figures show.

Data released by Veda, Australasia's largest credit reference agency, shows inquiries for personal loans increased 17.7 per cent from September to November compared with the same time in 2012.

More people also defaulted on their loans with the increase in unsecured lending.

The Reserve Bank introduced low-deposit lending restrictions on October 1, meaning banks can lend only 10 per cent of their total mortgage loans to people with deposits of less than 20 per cent.

The Veda data suggests concerns that the policy would drive desperate house hunters into the arms of more expensive second-tier lenders to make up their deposit shortfall were being realised.

Veda managing director John Roberts said people who would previously have borrowed up to 100 per cent from the bank to buy a home were looking elsewhere for their deposit.

They were taking out personal loans from finance companies, then using brokers to apply for bank loans.

"The country's overheated property market has created a sense of urgency for home buyers who are prepared to go to extreme lengths to secure that all-important first home," Roberts said.

"Second-, third- and fourth-tier borrowers are meeting the deposit demand - but the interest rate charged will be higher than that charged by a bank.

"The trend comes as banks are charging higher interest rates and low-equity premiums to those people who did obtain a loan with deposits of less than 20 per cent, and with interest rates forecast to rise, making borrowing more expensive.

Roberts said applications for personal loans were up 19.86 per cent for Generation Y, or those aged 27 and under, and 18.25 per cent for Generation X, for those aged 28 to 43.

They were up 14.8 per cent for baby boomers.

Mortgage applications were down by 7.6 per cent for the three months when compared with the previous year.

Veda did not provide specific figures, saying the information was commercially sensitive.

The number of people defaulting on their debts jumped 42.95 per cent for the three months as the amount of unsecured lending has also risen, Roberts said.

The aim of the Reserve Bank's policy is to lessen the risk posed to the economy by the rampant house market.

The news comes as the latest BNZ-REINZ Residential Market Survey suggests first-home buyers, who made up about 25 per cent of all buyers at the start of the year, are increasingly being locked out of the market.

The report released yesterday surveyed 587 real estate agents and said that number had dropped to about 15.3 per cent this month. Seventy eight per cent of the agents reported seeing fewer first-home buyers.

Labour's economic development spokesman Shane Jones said yesterday people in his Northland region were getting "clobbered" by the new lending rules and people in other areas would be faring the same.

"Many of our places up home shouldn't be stung with a 20 per cent deposit," Jones said.

"They should actually be encouraged to get loans with a 5 per cent deposit to actually develop economic activity.

Arguments from Reserve Bank governor Graeme Wheeler that a regional application of the rules was too hard to administer did not wash, Jones said.

"If he has a set of rules with harsh penalties confined to Auckland, then the banks will play by the rules because their licences will be at stake," he said.

The Government yesterday said Auckland Council would build 9500 new homes to help solve the city's "housing challenges".

Housing Minister Nick Smith and Mayor Len Brown said there would be a second batch of 11 special housing areas, after announcing the first batch 6000 homes in October. 

Fairfax Media